Earnings Vs. Revenue Weighted ETFs
Zacks Investment Research | Aug 30, 2016 10:50PM ET
The earnings recession in the U.S. corporate world has been prevalent for quite some time now. As per the Follow Goldman Sachs (NYSE:GS)' Strategy with These ETFs ).
This is a fairly good indication because sales are harder to be influenced in an income statement than earnings. A company can come up with decent earnings s by adopting cost-cutting or some other measures which do not speak for the companies’ core strength. However, it is difficult for a company to mold revenue figures.
In such an earnings-revenue backdrop, let’s take a look at which ETFs, earnings-weighted or revenue-weighted grabbed the spotlight in the Q2 earnings season.
Oppenheimer Large Cap Fund (MU:RWL) Versus WisdomTree Earnings 500 Fund (TO:EPS)
RWL: Stocks in the fund is graded on the basis of the top line. The top three holdings of the fund are Wal-Mart (NYSE:WMT) (4.57%), Apple (NASDAQ:AAPL) (2.34%) and Exxon Mobil (NYSE:XOM) (2.01%). Consumer cyclical (22.07%), consumer non-cyclical (21.46%) and financials (12.03%) are three of the leading sectors. The fund charges 49 bps in fees.
EPS: It offers exposure to broad U.S. large cap companies which are profitable. The top three stocks are Apple (5.02%), Berkshire Hathaway (NYSE:BRKa) (2.52%) and JPMorgan Chase (NYSE:JPM) (2.51%). The fund charges 28 bps in fees. Financials (21.76%), IT (20.38%) and Consumer discretionary (11.39%) round out the top three sectors.
OppenheimerMid Cap Fund RWK Versus WisdomTree MidCap Earnings ETF (SNX:EZM)
RWK: The same revenue-weighted objective isapplied here on the mid-cap level. Ingram Micro Inc-Class A (3.19%), World Fuel Services Corp (2.11%) and Avnet Inc. (2.02%) are the top three stocks here. The fund charges 54 bps in fees. Consumer cyclical (24.62%), Industrials (19.5%) and Consumer Non-Cyclical (8.94%) are the top three sectors of the fund.
EZM: In this mid-cap earnings-focused ETF,Antero Resources (1.86%), Navient Corp (0.92%) and Popular Inc (0.89%) hold the top three spots. Financials (23.2%), Industrials (19.92%) and Consumer Discretionary (18.85%) are three of the leading holdings in the fund. The fund charges 38 bps in fees.
Oppenheimer Small Cap Fund EES
RWJ:This small-cap revenue-weighed fund holds Group 1 Automotive Inc (1.61%), Veritiv Corp (1.59%) and Core-Mark Holding Co Inc (1.43%) as its top three holdings. Consumer cyclical (23.48%), Industrials (20.48%) and Consumer non-cyclical (16.5%) are the leading sectors of the fund. The net expense ratio of the fund 0.54% (read: Play US Recovery with These Small-Cap Blend ETFs ).
EES: This earnings-weighted fund’s top three holdings are EP Energy Corp-Cl A (1.78%), Joy Global Inc (NYSE:JOY) (1.41%) and Evolent Health Inc (1.39%). The fund charges 38 bps in fees. Financials (24.78%), Industrials (22.39%) and Consumer Discretionary (16.95%) are the leading sectors of the fund.
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Bottom Line
From the chart given above, we can see that the performance of the revenue-weighted ETFs lagged earnings-weighted ETFs. This could be due to the fact that though revenue growth rates of the S&P 500 companies were higher than earnings, the revenue beat ratio lagged the earnings beat ratio.
In Q2, 54% companies were able to beat the top line while 72.3% managed to surpass the bottom-line mark. Plus, those revenue-weighted funds mostly stress on the top revenue generating companies and not on the growth perspective.
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